CTP Ethics & Professional Responsibilities 5

Question 1

A CTP preparing a business return notices that the client's bookkeeper may have embezzled funds. The CTP's professional obligation is to:

Accepted Answer

Discuss the matter with the client and continue the engagement appropriately

Answer

The CTP's duty is to bring concerns to the client's attention; it is not the practitioner's role to investigate or report to law enforcement absent a specific legal duty.

Question 2

The 'more likely than not' standard in Circular 230 means that a practitioner must believe the position has:

Accepted Answer

Greater than a 50% chance of being upheld

Answer

The 'more likely than not' standard requires the practitioner to conclude there is greater than a 50% probability that the position will be sustained on its merits.

Question 3

A CTP who prepares a return with an Earned Income Tax Credit (EITC) claim has additional due diligence duties under IRC §6695(g), which include:

Accepted Answer

Completing IRS Form 8867 and keeping records of questions asked

Answer

IRC §6695(g) requires preparers to complete Form 8867 (Due Diligence Checklist), ask required questions, and retain records of the due diligence process for EITC, CTC, AOTC, and HOH claims.

Question 4

If a CTP is disbarred from practice before the IRS, which of the following actions is the practitioner still permitted to take?

Accepted Answer

Advise clients privately on tax matters without direct IRS contact

Answer

Disbarment prohibits practice before the IRS but does not prevent a practitioner from privately advising clients on tax matters that do not involve direct IRS representation.

Question 5

A CTP who knows that the IRS is examining a client's return may NOT:

Accepted Answer

Advise the client to destroy documents that may be requested by the IRS

Answer

Advising a client to destroy documents relevant to an IRS examination constitutes obstruction of justice and violates both law and Circular 230 ethical standards.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Ethics & Professional Responsibilities 5